PrintForeign tax bureaucrats have giant tech firms in their sights
Tech giants have been getting pretty much of a free ride on taxes overseas but that may be coming to an end. The Organization for Economic Cooperation and Development (OECD), a European is looking to make new rules that would force companies like Alphabet, Inc. and Facebook to pony up and pay more taxes on their massive profits.
Currently, tech giants are able to play hide and seek with their profits, moving them freely from high tax to low tax countries. They're able to do this because they have no physical plants in most nations, and thus, nothing much to tax.
But if the OECD and other European countries get their way, that will end.
U.S. tech companies, for instance, have often sold into countries via a unit based elsewhere, often in low-tax Ireland. The local unit is tasked with marketing and support, and the unit that makes the sales reimburses the local unit for expenses, leaving little taxable profit.
Countries such as France, Spain and the U.K.—frustrated by years of slow progress in trying to get companies to report more profits where their customers live—are planning to move unilaterally to tax tech firms. In some cases, companies worry they could be taxed twice on the same income.
Spain’s government last month sent parliament a new bill, nicknamed the “Google Tax,” that would slap a 3% levy on the gross revenue of some digital services. France will later this month introduce similar legislation.
The result: tech companies could pay tax once on revenue from customers in a given country—and again on the profit derived from that revenue, which may be reported in another country, such as Ireland or the U.S.
Such a scenario is pushing the U.S. Treasury Department to offer an alternative that is focused on all companies, rather than just digital ones. “The objective is to relieve some of the pressure from countries to take unilateral approaches,” Chip Harter, the lead U.S. negotiator, said in a speech this month.
The US government is right to try and put a brake on these efforts, not because tech companies are so beloved, but rather because it's simply unfair to tax profits twice. It would set a horrible precedent that could come back to bite governments who get too greedy about grabbing for all those billions.
Facebook and other tech giants are simply taking advantage of the way that the law has been written and enforced. But care should be taken that US tech companies get a fair shake from foreign governments and that taxation does not become expropriation.
